Alacer Gold (OTCPK:ALIAF) just announced the results of a study in which it determined that it can expand its heap leach pad capacity by 14% for $30 million. The study is a part of a plan to optimize the Copler Project's value which will be released in the first quarter of next year, although the company expects to be able to expand oxide production beyond 2017, which is a positive development considering recent concerns that the sulfide part of the project is expected to have relatively high capital costs.
In spite of this good news the stock barely reacted, and I think there may be an opportunity. The heap leach operation has been a cash-flow machine for Alacer in spite of weak gold prices, and that combined with the company's large cash position limit the downside potential faced by investors looking to get involved.
Investors will recall that I recommended the shares in March saying that the market had been overly pessimistic given political turmoil in Turkey, which is the location of the company's flagship Copler Mine. Even if we used conservative valuation metrics in order to account for this Alacer shares offered good value. Weakness in the gold price and concerns over the costs of producing sulfide ore have been setbacks, but the company has continued to generate cash-flow by processing oxide ore, and as today's press release reveals this can continue longer than expected. While there are certainly downside risks this is a cash-flow generating company with a large cash position that mitigates the downside risk, making it an interesting stock from a risk/reward perspective for gold bulls.
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